I know this probably will of little help, but I'm sure there is - I just don't know the technique. The reason for me saying so, is that i played a game once on Java4k, and it had some smudge effect of blue and white in the water. It is a game about driving aligators over in a boat. Perhaps you can look in the source for it? Hope to be a little helpful here.

Are there any implementations of a blur and smudge tool (like the ones in photoshop) for Java?

Could you be a bit more specific? How are you going to define the area you want to blur? What kind of blur do you want? How do you want edges to be handled? What performance constraints do you have? There are a few people here who could write the code you want, but unless you write a proper spec there's no way of telling how motivated they are...

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